WHY SEARCH? IS IT RIGHT FOR YOU?
Searching for a business to buy almost sounds too good to be true! You want to be an entrepreneur, but have no “great idea” to launch a start-up. Perhaps you have just completed an MBA program and dread jumping back into what you did before school. Or maybe you have been working for a “paycheck” for 5-10 years and want to have “ownership” in the business you are engaged in. Conceivably, you are tired of working in a large organization they got tired of you working for them! Finally, maybe you have heard that search is the path to riches!
Deciding to start down this arduous path is very personal and is different for each searcher. Ask yourself how important the qualities of autonomy, creativity and independence are in your role as a CEO. I reached out to 25 searchers to ask how they made this decision for themselves and the advice they would give to others considering search. Perhaps this will help as you look into your own mirror to decide if search is “right for you”. My other blog posts on contemplating your search cover the additional questions you have to answer for yourself before striking out.
Choosing the EtA path
One searcher/CEO commented, “I wanted my own professional outcomes to be more dependent on my own efforts. It would give me greater autonomy and impact in my day-to-day work and I wanted to maintain the big picture view of my organization.” A mid-career searcher/CEO says, “I desired more control – how I spent my time and managing my career while not watching from the sidelines.” Another reflects similar thoughts, “I wanted to be in charge of a business and call the shots; to be in control. In a corporation, excellent effort doesn’t always correlate to financial upside, at least that was my experience as an engineer in a Fortune 500 company. I was seeking the ability to craft the lifestyle I hankered for where I could work hard but in my own terms.” ^[redacted]CEO at King Sales simply says, “Freedom! I’m a blue collar person at heart and felt like a foreigner in corporate America and a native in a small business.” Another wanted to “Build and motivate a team and to see the impact of a changes I implement.”
^[redacted], CEO at American Security came from a Private Equity background and said “The PE opportunities would have forced me to choose between the acquisition team and the portfolio management team. I wanted to do both and EtA was a compelling and natural fit. Also, I had moved abroad for my MBA program and the prospect of geographical freedom was very attractive for my spouse and newly arrived daughter.” Another searcher/CEO says “For me, searching was a real, concrete way to bridge the gap between ‘knowing’ I would one day work for myself and actually doing it.” ^[redacted], at MAGNUM Capital says it was a very personal choice, “My husband and I could not get our careers to intersect in the same geography so we created our own opportunity. Also, it seemed to be a faster way to get to the top and become solely and fully responsible for a P&L.”
^[redacted] at Scottish American reveals, “I wanted to run a company with the goal of having a team of people working together to build something different and unique.” Another searcher/CEO adds “I liked the idea of joining something that is established, with real customers/products/revenue and trying to make it incrementally better, as opposed to a more ‘blue ocean’ approach that in my view seems to characterize the start-up founder route. I knew I wanted to have some aspect of entrepreneurship and operations within my career path.” ^[redacted], a self-funded searcher/CEO of Precision Concrete Cutting, reflects “I wanted to be the master my long term destiny, professional as well as work/life balance, after 5 years with a majority stake in a company where I can have a very tangible impact in a obscure niche industry and have fun.” ^[redacted] searcher/CEO at Dacha Prime, reports “I wanted control of my life and to do something great with my career.”
Another searcher simply says, “If guaranteed high income out of the gate is not as important to you but control of your life is, search may be a good option.” ^[redacted], a mid-career searcher/CEO at Eddyline Kayaks, asserts “For me, it was primarily an emotional need for a personal challenge. Secondly, to create a path towards building wealth and family security through equity ownership. Third was to fill a need in the community – stewarding a company that provided livelihoods and experiences for employees, customers, vendors, etc.” ^[redacted], President at Tru Family Dental felt “I don’t like being told what to do and love the flexibility that this path has provided me.” To ^[redacted]and ^[redacted]at Molded Dimensions, running their own business allowed them the flexibility to raise a family and for both to have a shot at running their business as CEO – another form of independence.
^[redacted], searcher/CEO at Bancroft Holding, disclosed “I feel like there was no other option for me and it feels like I was completely pulled into search vs. having made a conscious decision. I knew I needed to be in business for myself and have real skin in the game. After spending years working for venture capital-backed companies, I decided I would rather sell shovels than dig for gold!”
Hurdles to Overcome
The business you buy will not have the support structure, the peer support/challenge and the war chest to fund “projects” and “ideas” that you may have become accustomed to. In all likelihood, there will be neglect, waste and people issues that have vexed the prior owners. It is like buying someone else’s home or even a used car – it will have problems that are both apparent in due diligence and ones that arise later.
You will be taking the previous owner’s idea, strategy, and operational approach and using it to shape your own vision. It will be a long time before you can claim it as your own imagination and creativity. The business will have inertia and take time to bring about change. It is very far from the “start-up” experience where growth, new ideas, aligned goals and being on the cutting edge of innovation brings physic satisfaction. Unlike in a start-up environment, you measure your progress in years not months or weeks.
One searcher reports “Starting a company from scratch is really brutal and I wanted an easier path. I really enjoyed running small companies with staff, but I hated the early lonely days of starting something. I started down the traditional search fund path, but then later pivoted to the self funded approach. In the end, it actually looked a lot more like a start-up”. Another observes “Many searchers end up managing a team that is not necessarily composed of individuals that they would have chosen if they had the chance to build their teams from scratch. This means that searchers/CEO may need to adapt their management style to the teams they inherited, at least for the first couple of years in their tenure.”
^[redacted]searcher/CEO at Norfil remembers, “In the early years, I didn’t realize that my job was to be the SIC, salesperson-in-chief. I thought my salespeople were taking care of that for me, but I realized they weren’t once our sales dropped and I needed to focus on the top line!” Another search echos this, “My lack of quota-carrying real world sales experience was surprising. How quickly you lose the ‘outsider perspective’ which is a good reason for thoughtful peers and strong board.” The bottom line and cash flow is also very important as one searcher/CEO quickly found “I didn’t realize how much I would feel the monthly P&L and balance sheet in my gut.” Yet another was reminded that, “I find that business is simply about people, people, people which is much clearer to me now than it was at the outset. I wouldn’t call this ‘unexpected’ but the magnitude of it never ceases to amaze me.”
Another finds, “It is very lonely at the top. Ultimately nobody other than you deals with the specific set of issues/opportunities/consequences that you have to deal with. Also, people issues tend to take up the most share-of-mind. You feel like a parent, and as a result, you find yourself always worrying: will we make our numbers next year; will any key people quit; are we keeping up with our competition? Just navigating the outward transition of the old owners took an enormous effort and self-control!” ^[redacted] a searcher/CEO at Puertas Globles recounts that, “It is very mentally demanding given the large amount of HR/people problems you have to deal with along with with the Market/Economic/political headwinds that are completely out of your control here in Guatemala.” One funded searcher discovered, “Ultimately, you still don’t own the business so you are not really your own boss.”
The reality of managing others can be very challenging, as one recent searcher/CEO found “Dealing with employees who bring life complications to work – whether it’s substance abuse, financial problems, family issues, etc. that impact their performance. Trying to find ways to work around these issues and keep people engaged is always on my mind.” ^[redacted] CEO at Northmont finds “Not everyone likes managing a diverse range of challenging personalities. Most employees are not motivated the same way a CEO is and that can be hard to grapple with. In my own case, getting an ageing workforce to adapt to new technology has been particularly tough.” Brandon Halcott observes “I had not idea I would stop doing things on my own and instead had to learn how to get things done through other people.”
The comparison to a start-up in terms of self imposed pressures was cited by Paul Thomson, “I needed stamina and experienced health challenge, largely due to stress; it takes a while for the company grow to it’s full potential and change from its previous path.” Scott Duncan reports his primary frustration “Trying to drive change when things have always been done a certain way and when our small team already has time capacity constraints.” ^[redacted], searcher/CEO at IRIS, reflects “Time, or lack of it has been a problem. I didn’t expect to be so consumed by my employees, customers, vendors, etc. They can be very needy, especially in the midst of change and this increased demand on your time has a crowding out effect on your out-of-office relationships.”
When running the business, the operating challenges will test your own skills. ^[redacted], a serial searcher/CEO at Predictive Index found the biggest challenge to be “The importance of my own leadership. This was a shocker, but when you think you’re a great leader, it only means you haven’t set the bar high enough.” Another reflects, “From a personal point of view, the biggest challenge has been learning how to leave the work at the office, rather than bringing it home and thinking about it all the time. I had to get used to living with a certain amount of mess and imperfection in my day-to-day work.” Additionally, a mid-career searcher/CEO found, “I was concerned that I would get bored only focusing on one company. The opposite has been the case since I have found the variety of responsibilities and challenges of running a business so much more engaging and rewarding than when I was actually only doing a handful of tasks on the investment side.”
Being Rich or Royal
Professor Noam Wasserman in his books, Founders Dilemma and Life is a Startup asks all would-be entrepreneurs – do you want to be Rich or King. Search is certainly a path to being king or queen – making key decisions, setting direction, being in charge and having an impact. The path to riches is much less certain – most searchers early in their careers have to do more than one search before they see a significant payoff for themselves. Those who remain in their businesses may wait a couple of decades before cashing in, with some missed opportunities along the way and very probably some “hard times” financially.
As one searcher points out, “Don’t do a search for the money, there are easier ways to make a living!” Reggie Stevens goes even further, “The economic upside is not certain and there are highs and lows throughout which cause financial factors to become slippery motivators. Do it because it’s who you are. Do it because you would almost do it for free.” On the flip side, one searcher/CEO observed “I saw EtA as a wealth-creation opportunity, a way to get more responsibility faster, enhance learning more, and finally a good fit with my own personality.”
Besides not necessarily leading to short term financial success, searching is neither running a “Mini Private Equity Firm” nor “asset class investment”. While the search process itself feels in many ways like what PE firms do, there is initially only one company in your “portfolio” and with the exception of negotiations, the skills developed during the search have very little carry over to the operating phase of running the business you acquire and over time, your own motivations may change. One searcher/CEO explains after 3 years running a business, “I liked the idea of not having a boss and being the boss. I thought that in the long run it would be a better path economically than getting a real job. I still believe that there is a reasonable chance that this has put me on a better path towards long-term financial success. However, I care a lot less about that than I did before. Now I just want to build something great.”
While the thought of having multiple businesses is appealing, successful searchers must be “operators” and generally are not satisfied being an absentee owner. A successful outcome is dependent on how the business is run in addition to the terms of the deal, multiple paid, industry segment, growth prospects, and even the historical track record.
The long operational horizon brings with it a positive impact on lifestyle. The startup reality of frenetic pace, extremely long hours and weekend meetings does not generally apply. You can have a life beyond just your business. With an average of 5-7 years or more before exit, this time frame gives you much more freedom to be with your family, develop your personal interests and have balance in your life in addition to providing results to your investors.
Advice from searchers/CEOs
^[redacted], CEO of American Security observes, “Prioritize personal and professional compatibility with the searcher/CEO role over financial success. I believe doing this helps hedge against the challenges because searching and operating is just not easy!” Another searcher/CEO says, “Do not search if you’re using it as a vehicle to replicate running a micro-cap private equity fund. Also, do not search if you’re more excited by the idea of the search than you are about the idea of operating the business. And, finally, don’t do this unless you work well autonomously, with little direction and little feedback.” On the other hand, Zack Belzberg says, “If you are energized by problem solving, getting people to perform at their best and a constant changing environment, search could be a great path for you.” Consider the risks of traditional entrepreneurship and compare them to the risks of searching (both financially and professionally)
^[redacted], a serial searcher/CEO at Predictive Index cautions, “Consider the employees of your newly acquired company. Thoughtfully question whether you want the responsibility of their careers, their family’s well being and their economic livelihood on your shoulders. If you’re worried about that in equal proportions to being excited by it, then you may not be cut out for the top job.” Failure, a very real possibility in search, does not just impact you, but the lives of many others. This “mantle of ownership” weighs heavily on your shoulders as a CEO. ^[redacted], points out, “Better know ‘why’ before you start searching because it is going to be a lot tougher than you think.”
Recognizing the time commitment for a search path and its fit with your own personality, interests and timetable, ^[redacted] at Scottish American warns, “You are signing up for more than a decade of a career path. How does that feel? It is probably the longest time frame you have encountered in your life? Are you confident that you want to work with the investors and perhaps a partner for as long as a decade?” ^[redacted]advises, “If you are paralyzed by the decision of whether or not to engage in a search process, it’s either not the path for you or not the right time. Quick and decisive decision making is critical to success as a searcher and an operator, and if you are paralyzed by doubt at the starting line it doesn’t bode well for your chances of success down the road, so back away for now.”
^[redacted] pragmatically points out “Don’t do it to get wealthy. This is the slow path to riches. Paying down debt takes time, growth eats cash that you might not have, and you may also have front loaded an entire career’s worth of stress into the early years. Search is not choosing a career, it’s choosing a lifestyle, and therefore is a much weightier decision. Your significant other should be your biggest supporter. You both should know what you’re getting into.” Additionally, as one searcher/CEO points out, “Don’t go down the search route if you prefer to be an investor, instead just go and do that. Search is all about details, so if you like getting into the weeds then running a small business could well be the right option for you!”
A mid-career searcher/CEO observes, “Being a search/CEO is all encompassing. While I have more discretion over my time, the company is always on my mind and decisions that are best for the business but not in the best interests of a specific individual are intellectually easy, but practically hard, to make. Finally, coming to a decision & strategy is the easy part, getting buy-in and implementing it the hard part. Just be prepared for this!” Doren Spinner suggests, “While the searching and deal process is relatively short, the CEO job continues for quite a while; make sure you like the part of the job that lasts.”
^[redacted]advises, “Ask yourself if search or a more traditional path will afford you the things you value most. This career path is not a matter of can or can’t it’s a matter of will or won’t based your own values and interests.” Another searcher uses a different lens, “Do it because it sounds so fun that you can’t resist. It will be a lot less fun than it sounds, so if it doesn’t sound REALLY fun, then it probably is not a good fit for you.”
One Search/CEO reflects, “Searching is just the first step to managing a small business so the real question you need to ask yourself is ‘why’ do I want to manage a small business?” Finally, a searcher/CEO says “I would make sure you are comfortable with being at a small company for a long period of time, say 10 years, in order to truly realize this opportunity.”
Be sure you are doing this for the right reason. Don’t search because it is popular and trendy or FOMO. The skill set for searching cannot be learned, instead it has to be experienced. Are you ready to “hire” yourself as the “CEO” of the business you purchase? There are plenty of other quicker paths to immediate riches in the financial services, Venture Capital, Private Equity, consulting or hi-tech startup field.
Searchers who head down this path, end up “in-control” of their own destinies. For me, building something that lasted beyond myself and provided value along the way to the many constituents dependent on it was a fantastic “physic” reward, much more important to me than the financial outcome.
Feel free to share some of your own best practices or experiences in dealing with these issues in the blog comments. I encourage comments and dialog, allowing all in the community to learn from both my views and the views of others – a virtuous learning cycle. Jump right in! I frequently update individual blog posts, add to the Reference section and Search tips, so visit the www.jimsteinsharpe.com website regularly.